Nick Meredith, Products Director, Equisoft in response to the DWP proposals on small pots says:
We agree with the overwhelming majority of the pensions industry that has shown almost universal support for the ‘pot follows member’ approach over the last decade and we were surprised by the decision and the reasoning behind the choice by the DWP of a consolidator model. The only supporters of the latter would appear to be those organisations who would look to be consolidators.
We still feel ‘pot follows member’ delivers a much clearer solution for consumers while avoiding the complexity and cost of centrally procured government infrastructure. We also feel that some of the issues cited as to why ‘pot follows member’ was not the right choice, are not adequately resolved by the DWP’s proposed solution.
We have four main concerns with the consolidator model approach proposed by the DWP:
- The default consolidator model relies on consumers being actively engaged and having a relatively sophisticated understanding of the small pots process. We know from experience that this is unlikely, and the proposed communications as part of the mechanism are far more likely to lead to concern or confusion.
- We also have reservations over the proposed value limits as again, engagement from already disengaged individuals is unlikely to happen until meaningful pot sizes – say £10k as per previous industry recommendations - are achieved.
- The proposed solution has an unfair risk / reward profile as it puts much of the operational effort on the ceding scheme while the consolidator gets the benefit from the ultimate transfer of assets and the resulting economies of scale.
- Our biggest worry is the concept of a central government clearing house or register. This is in complete contrast to the current dashboard project where creating a central register was specifically ruled out. Centralised government procured systems do not have a great track record and we also have concerns about the security of consumers data and the potential for cyber-attack that creating a single, vulnerable target might lead to.
We believe that as it stands today this proposal is too complex, risky, expensive and will take significant time to deliver. In the meantime, the small pots problem continues to grow, and consumers are losing real value as their pensions wither away.
The way forward
We believe that given the DWP has signalled its intention to go down the consolidator model there are practical ways to improve the safety, efficiency and cost of the proposal.
We feel there are opportunities to use existing open transfer standards and elements of the originally proposed ‘pot follows member’ solution to create a federated model of consolidator information.
This would expedite solution delivery, thereby removing the need for central registries or pot data and only needing a simple solution for the allocation of pots to a default consolidator, if at all.
We hope that the DWP listens to the overwhelming sentiment from the pensions industry to consider refinements and improvements to the consolidator model. Regardless the Equisoft team will be continuing to support our clients with solutions as they navigate these developments.
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As a leading technology partner to the Pensions Industry, Nick Meredith is available for comment and interview on this story.